We have a client who holds a property in a regional area. The property is approximately 3,800m2 and is used as an aged care facility, the buildings are purpose built and to use it for any another purpose would require the existing structures to be demolished. For the financial year, the trustee encountered issued in obtaining a valuation due to inconsistency between the value of the land and buildings themselves and the value of the tenancy. Valuing the property simply on the land and buildings results in (what they perceive as) significant undervalue. Instead the trustee has based the market value on a estimated yield, which results in a significantly greater market value.

This has caused issues from an audit perspective as basing the valuation on an assumed yield is highly sensitive to change in the assumed yield. Furthermore, there is a lack of evidence around what the assumed yield should be.

We have considered qualifying Part A and Part B of the audit report due to the uncertainty around the market value of the investment. That being said, from a risk assessment approach, we don't believe the trustee has any reason to overstatement the value of the property as all it would do is restrict their ability to contribute and increase their minimum pension requirements. Furthermore, both members are >70 years old and over 1.7m TSB.

Do you believe this situation would result in a contravention of s.8.02B? Alternatively, given we are taking a risk based audit approach and the trustees appear to be acting in a conservative manner, would this allow for the contravention/qualifications to be disregarded?